What Happened?
Shares of equipment distributor Watsco (NYSE: WSO) fell 3.8% in the afternoon session after the company disclosed at a Morgan Stanley conference that its year-to-date unit sales are down 12%.
The slowdown was attributed to a decrease in new construction and more cautious consumer spending. This update comes after a recent disappointing quarter for the HVAC distributor. In its second-quarter report, Watsco's revenue of $2.06 billion was down 3.6% year-over-year and fell short of analysts' expectations. The combination of the significant drop in unit sales and a recent revenue miss is likely raising investor concerns about the company's near-term growth prospects amid current market challenges.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Watsco? Access our full analysis report here, it’s free.
What Is The Market Telling Us
Watsco’s shares are not very volatile and have only had 5 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.
The previous big move we wrote about was 21 days ago when the stock gained 3.4% on the news that the major indices rebounded, as Fed Chair Jerome Powell delivered dovish remarks at the much-awaited Jackson Hole symposium. Powell suggested that with inflation risks moderating and unemployment remaining low, the Federal Reserve might consider a shift in its monetary policy stance, including potential interest rate cuts. This outlook eased market concerns about prolonged high interest rates and their impact on economic growth. The prospect of lower borrowing costs bolstered investor confidence, particularly in sectors that have lagged, leading to a broad rally across the market.
Watsco is down 18.3% since the beginning of the year, and at $382.96 per share, it is trading 32.7% below its 52-week high of $568.78 from November 2024. Investors who bought $1,000 worth of Watsco’s shares 5 years ago would now be looking at an investment worth $1,612.
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